We Think Antibe Therapeutics (TSE:ATE) Needs To Drive Business Growth Carefully

Just because a business does not make any money, does not mean that the stock will go down. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So, the natural question for Antibe Therapeutics (TSE:ATE) shareholders is whether they should be concerned by its rate of cash burn. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for Antibe Therapeutics

How Long Is Antibe Therapeutics' Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In December 2022, Antibe Therapeutics had CA$42m in cash, and was debt-free. Looking at the last year, the company burnt through CA$17m. Therefore, from December 2022 it had 2.5 years of cash runway. That's decent, giving the company a couple years to develop its business. Depicted below, you can see how its cash holdings have changed over time.

Can Antibe Therapeutics Raise More Cash Easily?

Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Commonly, a business will sell new shares in itself to raise cash and drive growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Since it has a market capitalisation of CA$28m, Antibe Therapeutics' CA$17m in cash burn equates to about 60% of its market value. That's high expenditure relative to the value of the entire company, so if it does have to issue shares to fund more growth, that could end up really hurting shareholders returns (through significant dilution).

Is Antibe Therapeutics' Cash Burn A Worry?

Given it's an early stage company, we don't have a lot of data with which to judge Antibe Therapeutics' cash burn. Certainly, we'd be more confident in the stock if it was generating operating revenue. Having said that, we can say that its cash runway was a real positive. So while we're not too worried about its cash burn at the moment, we do think shareholders should monitor it closely. Taking a deeper dive, we've spotted 3 warning signs for Antibe Therapeutics you should be aware of, and 1 of them is a bit unpleasant.

Of course Antibe Therapeutics may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.